Medicare . . . There’s a Lot to Know

Copyright: <a href='https://www.123rf.com/profile_auremar'>auremar / 123RF Stock Photo</a>It is hard to believe that in 2017, Medicare provided health insurance coverage to more than 49.5 million Americans age 65 and older. But according to the Medicare Trustees Report that is true. As more Baby Boomers reach retirement age, that number will continue to grow, with 64 million expected by 2020 and 80 million anticipated by 2030.

Many of my clients, as they approach the age of eligibility for Medicare, have questions about it – when to enroll, what it covers, and more. Medicare can be complicated and confusing – so if you have questions, you’re not alone. In fact, a recent poll conducted by Nationwide Retirement Institute noted that 72 percent of respondents (adults over age 50) wish they better understand Medicare coverage.

So, this week let’s dive down to see if I can help you better understand Medicare.

The first point of confusion many folks have is when they’re eligible for Medicare. That’s because some of us confuse our Medicare eligibility age with our Full Retirement Age (FRA). FRA is the age at which a person is eligible for full Social Security benefits. Your FRA is between 65 and 67 depending on your year of birth. Medicare, on the other hand, is available to people over age 65 who are eligible for Social Security benefits (whether or not they are collecting those Social Security benefits).

There are four separate parts of Medicare coverage. Traditional or “original” Medicare consists of two parts: Part A covers hospital and skilled nursing care (hospital insurance) and Part B covers physician and outpatient hospital care (medical insurance). Part D covers outpatient prescription drugs. Medicare Advantage programs, commonly referred to as Part C, are administered by insurance companies and often combine the other three parts while offering additional services not otherwise covered. Medigap policies are supplemental policies offered by insurance companies to cover Medicare deductibles and exclusions.

Bear in mind here that traditional Medicare does not provide coverage for many health benefits that seniors need – vision, hearing aids, and dental care (such as dentures) are practical examples. What’s more, out of pocket costs associated with Medicare certainly build up over time. So those Medicare Advantage and Medigap plans give Medicare beneficiaries the option of covering those essential services to keep them healthy in their later years.

Generally, if you are collecting Social Security at least four months before you turn 65, you are automatically enrolled in Parts A and B. Otherwise, you must enroll during a limited window of time. Typically, that window is seven months: the three months before your 65th birth-month, the month of your birthday and the three months after that. This is referred to as the Initial enrollment period. If you fail to enroll during that Initial enrollment timeframe, you could pay late enrollment fees, and you may have to wait for the General enrollment period (from January 1 to March 31 each year) before you can join, so it’s important to pay attention to the calendar. Open enrollment, which is from October 15 to December 7 each year, allows you to change plans.

This next bit is essential, as it applies to more of us these days than ever before. Many of us are putting off retirement and continuing to work and earn income well into our 60s and 70s. Even if you are age 65 or over, if an employer health plan covers you (either your own or your spouse’s), you may not need to enroll in Medicare, unless and until you lose the employer coverage. However, in some circumstances you are required to enroll or otherwise face the possibility of higher premiums down the road. You really need to make sure you understand your situation.

There is also a lot of confusion over premiums. Part A premiums are determined by the number of qualifying quarters in Medicare-covered employment. If an individual has 40 or more qualifying quarters, there is no premium. An individual with 30-39 qualifying quarters pays $227 per month. The premium is $413 for anyone with fewer than 30 qualifying quarters.

Many do not realize that unless covered by Medicaid, every Medicare recipient pays a premium for Medicare Part B, the medical insurance portion of Medicare which provides coverage for medically necessary services, preventative services, durable medical equipment and more. In fact, Nationwide Retirement Institute’s poll shows that 53% of older adults do not know there’s a cost associated with Medicare Part B. The standard Part B premium is $134 per month, with a $183 annual deductible. The premium varies depending on income; the $134 figure applies to individuals making $85,000 or less and couples filing jointly who make $170,000 or less (based on Modified Adjusted Gross Income). After the deductible is met, Medicare patients typically pay 20% of the approved amount for most doctor services, outpatient therapy, and durable medical equipment.

Part C and Part D premiums depend on the plan selected. Some people are inclined to enroll in Part C and Part D plans and never make any changes to their selections. But it is important to understand that prices and coverage of those plans can vary over time. What’s more, needs can change over time. Therefore, it is important to review your options during the Open Enrollment Period (October 15 to December 7). Otherwise, you may end up paying a higher premium than you need to.

Finally, it’s essential to understand that long-term care – custodial care, such as that offered by a nursing home – is not covered by Medicare. Medicaid is the federal needs-based program that can help pay for long-term care for those with limited income and resources.

Medicare coverage notwithstanding, a healthy 65-year-old couple entering retirement in 2018 will need $280,000 to cover their health-care costs in retirement, according to estimates published by Fidelity Investments. The good news is that that number is relatively flat from last year, rising only 2%. The bad news is that it’s up 75% since Fidelity started keeping track in 2002. Health care costs continue to increase, and it looks like there’s no end in sight. What’s more, recent changes being made in Washington D.C. may affect Medicare coverage for the future.

As a result, health care costs remain one of the biggest, yet most unpredictable factors for many people planning their retirement. If you haven’t already sat down with your spouse and your retirement specialist to discuss this critical aspect of your retirement, please do so as soon as you can.

With Medicare and rising medical costs, what I tell you every week is truer than ever. . . Be vigilant and stay alert, because you deserve more.

Have a great week!

Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, a wealth management firm with offices is Falmouth, Duxbury, and Mansfield. Jeff can be reached at jeff@cutterfinancialgroup.com.

Cutter Financial Group LLC (“Cutter Financial”) is a SEC Registered Investment Advisor.

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